Shares of Vivus, Inc. (NASDAQ:VVUS) declined by nearly 4% today after performing well the last couple of days based on a regulatory filing with the Securities and Exchange Commission. The filing indicated that an investment firm called Aspen Investment Fund LLC may make an offer to buy out the drug maker.
However, there could be something fishy going on here, making this situation worth a second or third look by investors. This isn’t to say that something’s definitely wrong here. This entire situation could be entirely legitimate and Aspen might really be thinking about making an offer for Vivus, Inc. (NASDAQ:VVUS). But there are causes for concern, with the big one being that the firm that said it might make an offer doesn’t appear to even be in U.S. regulatory databases.
Aspen owns call options and contracts in Vivus
The filing indicates that Aspen Investment Fund LLC owns nearly 10 million shares of Vivus, Inc. (NASDAQ:VVUS), which amounts to a 9.65% stake in the company. The name of the reporting person is Zoi Potsi, who is in Cyprus. Aspen itself is registered in Delaware, but it was only formed a couple of weeks ago—on May 16 of this year. This is reason #1 to question this supposed potential offer. Seems like a firm with lots of cash would have been around longer. This is a rather thin reason though, admittedly.
When reading the filing more carefully, it becomes clear that the nearly 10 million shares owned by Aspen includes 3.85 million “shares of Common Stock underlying American-style call options exercisable on July 19, 2014” and about 6.12 million shares of “Common Stock underlying forward purchase contracts.” The filing states that the source of funding for these transactions was the firm’s “general working capital. Reason #2: it’s interesting that call options and forward purchase contracts make up Aspen’s stake in Vivus. A prominent short-seller commented to ValueWalk ‘ I have never seen this in over 20 years. The deal makes no sense legally, strategically , etc.’ He asked why buy options with a five cent strike price when the stock is in the five dollar range, since the options are so deep in the money it doesn’t make any sense to me.”
Aspen thinks Vivus is undervalued
[drizzle]Aspen Investment Fund states in the filing that it believes shares of Vivus, Inc. (NASDAQ:VVUS) to be undervalued and that it intends “to engage in discussions with the Issuer and Issuer’s management and board of directors, other shareholders of the Issuer and other persons that may relate to governance and board composition, management, operations, business, assets, capitalization, financial condition, strategic plans and the future of the Issuer.”
The firm goes on to state that it is “currently contemplating a conditional non-binding offer” to buy Vivus, Inc. (NASDAQ:VVUS) for a total of $640 million. That bid would allegedly be made using Aspen’s working capital, cash and cash equivalents from Vivus and debt from other investment banks. If Aspen makes an offer, it said it will do so by June 13, 2014.
Reason #3: so aside from the fact that this firm owns so many options for Vivus, Inc. (NASDAQ:VVUS), it’s also interesting that Aspen is disclosing its contemplations before actually making an offer. This is highly unusual because in most cases, buyers don’t disclose the terms before they actually make an offer. This causes some to question Aspen’s motives.
Aspen doesn’t seem to have things in order
Reason #4: Also it appears as if Aspen doesn’t have a U.S. law firm representing it or advising it on this matter. While a post on The Street suggests that the reporting person, a Zoi Potsi, appears to work at the Cyprus-based law firm Patrikios Pavlou, normally a firm would have a U.S.-based legal advisor as well.
However, that doesn’t appear to be the case here. Most 13D filings list either an internal or external lawyer at the very top of the filing, but Aspen Investment Fund has not listed one. Also the post on The Street links to a lawyer whose name is Zoe Potsi, with a different spelling than the one on the regulatory, so it’s unclear if this lawyer is actually the same person on the SEC filing. Zoi Potsi might not even be a lawyer at all.
Reason #5: Aspen Investment Fund LLC doesn’t appear to be registered with regulatory agencies in the U.S. This is perhaps the most serious problem out of all of these. We checked with officials from the Securities and Exchange Commission, and they said the only record they have of Aspen Investment Fund appears to be the 13D filing for Vivus, Inc. (NASDAQ:VVUS). The firm also doesn’t appear in FINRA’s Broker Check database or the SEC’s Investment Adviser Public Disclosure database. Aspen filed its paperwork to form as an LLC in the State of Delaware, but the registered agent it lists is Harvard Business Services, Inc. A search of that company reveals that it offers services as a registered agent, seemingly to anyone, and will file the incorporation paperwork for new companies to officially form.
And Reason #6: They don’t answer their phone. It seems a bit odd that a firm that’s supposedly able to pay $640 million for a company like Vivus, Inc. (NASDAQ:VVUS) doesn’t employ a receptionist who answers the phone. Also a reverse lookup on the number listed on the 13D filing indicates that it is a cell phone rather than a land-line.
So these are some things investors should consider when determining whether Aspen really intends or even is able to make an offer for Vivus, Inc. (NASDAQ:VVUS). Once again, this isn’t to say that something’s definitely wrong here, but there are causes for concern.